The parent company of Pratt & Whitney, RTX Corp (RTX.N), announced a $3 billion charge on Monday and informed airlines that hundreds of its Airbus planes would be grounded at any given moment in the future years so that inspectors could look for a rare production problem, sending shares down to a two-year low.

The Geared Turbofan series, originally manufactured by Pratt & Whitney and bought by RTX (then known as Raytheon) in 2020, has had a history of durability issues, and this warning follows on the heels of this news.
RTX announced in July that the potential for certain engine components to shatter due to a rare powder metal flaw, prompting the company to request expedited tests of 200 engines by the middle of September.

On Monday, for in-depth quality checks, the company expects to remove 600 to 700 engines from its Airbus A320neo planes between 2023 and 2026.

CEO Greg Hayes originally estimated that repairs would take 60 days but now estimates that it might take up to 300 days per engine. From 2024 through 2026, an annual average of 350 planes might be grounded. By the beginning of 2024, as many as 650 planes could be lying idle.

Late in trade, RTX shares dropped 7.9% to $76.89 from a session low of $76.71. Investors sold 1.3% of Airbus stock in Paris.

The A320neo series, which competes with the entirely CFM-powered Boeing 737 MAX, is powered by Pratt & Whitney or the GE-Safran (SAF.PA) joint-venture CFM.

After revealing that it would have to spend $6-7 billion on fixing the issue, RTX stated it anticipated a pre-tax loss of up to $3.5 billion.

It reduced its forecast for reported sales in 2023 by $5.5 billion and its forecast for free cash flow in 2025 by $9 billion.

It is too soon to determine how this year’s financial targets will be impacted. Still, MTU Aero Engines (MTXGn.DE), a German partner that controls 18% of the GTF program, has stated it may have to absorb 1 billion euros in additional expenditures.

Hayes told investors the issue “will have a significant impact on our customers.”

Due to durability issues, several airlines have had to ground their A320neo-family planes as they wait for replacement engines.

One of Europe’s top low-cost airlines, Wizz Air (WIZZ.L), based in Hungary, predicted that the powder problem might cut capacity by 10% in the second half of 2024. Lufthansa (LHAG.DE) of Germany, the first airline to adopt the GTF engine series, has said it is now assessing the matter.

AIRBUS STILL ON TRACK TO DELIVER

According to Jefferies, the U.S. airlines most exposed to the GTF concern include Spirit Airlines (SAVE.N), JetBlue Airways (JBLU.O), and Hawaiian Airlines (HAII.UL). When asked for comment, no airline promptly provided one.

Analyst Robert Stallard from Vertical Research Partners said the RTX costs were excessive.

Airbus has said that the issue would not likely affect deliveries in 2023 or the anticipated increase in manufacturing in 2024.

Airlines are increasingly demanding that engines be pulled from production lines and made available as replacements to keep current planes airborne, and industry insiders have warned that the additional tests might worsen this demand and supply imbalance.

Airbus has hesitated to relax delivery objectives to put engines into the spare pool despite the company struggling with shattered supply chains.

The powder metal used to make engine components like high-pressure turbine and compressor disks has a “rare condition” that may cause micro-cracks and fatigue.

According to Hayes, 2015 during increased production, tiny contamination was introduced into the powdered metal produced by RTX subsidiary HMI in Clayville, New York.

“At last count there have been nine changes to the process to ensure the purity of the powder,” said Hayes, adding that he is “confident” the issue has been rectified.